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THE ROLE OF WTO IN DSU: AN ANALYSIS

Author: Aditi Agarwal, I year of LL.M. from Christ (Deemed To Be) University, Central Campus


INTRODUCTION

The core function of a trade dispute settlement mechanism in international commerce is to act as an effective custodian of the rules-based system. From the General Agreement on Tariffs and Trade (GATT) to the current day, the evolution of dispute settlement in international trade indicates an increasing significance to a system that is not dependent on power. The previous system was ineffective and lacked appropriate political control. The WTO system is praised as a breakthrough in international economic relations that goes beyond power. Despite this huge progress, the current system is still neutral in certain ways.


WTO dispute settlement features specific procedural norms, an appeals process, and back-up arbitration mechanisms to deal with non-implementation and the computation of trade sanctions in response to ongoing non-compliance, in comparison to most other international adjudication systems.For poor nations wanting to protect their trade rights and development objectives, the World Trade Organization (WTO) dispute settlement procedure might be crucial. The system has been critical in combating damaging subsidy programmes, reducing unjust anti-dumping charges, and guaranteeing that Least Developed Countries (LDCs) may pursue trade diversification policies to provide new employment and income possibilities.

There has been an upsurge in cross-border trade between nations over the years. With technological advancements resulting in a new global business paradigm, trade and governmental bodies such as the World Trade Organization (WTO) and Regional Arbitrations have stepped up efforts to end protectionism, establish liberalised cross-border trade, and eliminate the prevalence of beggar-thy-neighbour economic policies.


Developed nations are in a far better position than developing countries, and as a result, many underdeveloped countries do not consider using an international platform. This is mostly due to the exorbitant expense of involvement and the unpredictability of the advantages. In international law the term dispute means a specific disagreement relating to a question of rights or interests in which the parties proceed by the way of claims, counterclaims, denials and so on.[i] In another definition, dispute in international law is a situation when one entity of international law demands from another one specific action or behaviour and such a demand is based on the rules of international law binding for both parties and this other entity resists this action or behaviour.[ii]As a result, the term disagreement differs from conflict, which refers to a general state of animosity between the parties. The distinction is important, since opposite to the conflicts, disputes are not entirely undesirable and may have certain valuable characteristics such as an effect of law clarification.[iii]


In the context of the WTO Dispute Settlement system, the term dispute stands for a situation in which one WTO Member State adopts a trade policy or measure or takes some action, that one or more concerned WTO Members consider to be a breach of the WTO Agreements or a failure to meet obligations under such agreements.[iv]


Most importantly, WTO members have regularly employed the dispute settlement mechanism, which has successfully resolved disputes in the vast majority of instances with significant exceptions. Without a good understanding of the history of international trade through time, a complete and successful examination of the shaping forces of international commerce and the settlement of international trade disputes is impossible.


At the same time, the WTO must ensure that disputes are resolved quickly and that retaliation is replaced with alternative viable remedies. However, the Agreements, including the DSU, appear to contain significant flaws that might encourage a nation to break the WTO's trade regulations. The DSU's inability to offer an effective and timely response to such deviations significantly jeopardises the WTO's whole multilateral trade system. Despite the enthusiastic vows made by WTO members, the results of WTO Ministerial Meetings illustrate that multilateral trade negotiations may nevertheless end in gridlock and failure. An effective WTO dispute settlement system because it serves the public interest.


The 1994 signing of the World Trade organization (WTO) Agreement marked theinitiation of the most far-reaching and comprehensive international agreement on trade inthe history of the modern world[v]. The creation of an actual trade organization was amarked improvement over the WTO’s predecessor, the 1994 GATT, Among the manyimprovements to the GATT, the WTO Agreement substantially changed the mechanismfor dispute settlement wheneverconflict arose between member states.[vi] This change, was initially hailed as a great improvement over the GATT dispute settlement provisions.[vii]


Unfortunately, the DSU has not been the comprehensive dispute settlement mechanism its framers had hoped to create.[viii]


THE PROBLEM

As a WTO member, a nation is obligated to participate in WTO discussions, which involve trade liberalisation. When a country conducts commerce with another country, disagreements are unavoidable, and countries must use the DSU in such circumstances. However, the Agreements, including the DSU, appear to contain various flaws that might encourage a nation to break from the WTO's trade standards. The current study aims to analyse the effects of the DSU's deficiencies and focuses on what the WTO should do to offer quick and appropriate remedies for unfair trade practises.


HISTORY OF DISPUTE SETTLEMENT SYSTEM

GATT DISPUTE SETTLEMENT

The mechanism by which GATT judged trade problems was first formalised in an appendix to the 1979 Understanding on Dispute Settlement, and it bears a lot of similarities with the DSU system. A case would begin with a request for consultations, just as it does now. A complainant would request a panel procedure if a mutually suitable solution to the disagreement could not be reached during negotiations. The twist in this scenario is that, under the GATT, a defendant might deny the complainant's request for a panel, a prospect that has long been viewed as one of the system's most blatant flaws[ix]. Interestingly, few defendants blocked requests for a panel.[x] Rather, they routinely obstructed the acceptance of panel recommendations, exploiting GATT's other well-known flaw.


The first of these gaps was addressed in 1989 with the Dispute Settlement Procedures Improvements, which gave complainants the right to a GATT panel. Defendants could no longer prevent or considerably delay a panel request, even while the potential of non-adoption loomed large. The EC recognised that the Improvements had removed the strategy of delay in the GATT-era Bananas instances, for example, and encouraged the panel not to go too hastily in hearing this intricate issue[xi]. In this approach, the Improvements provided a method for complainants to avoid the consultation stage's "power politics." Perhaps notsurprisingly, the Improvements were thus argued to have revitalized dispute settlement[xii], given GATT “teeth,”[xiii] and encouraged the paneling of disputes more generally.[xiv]


Despite its infamous flaws, the system was quite effective overall. However, in those cases that got to trial, 83 percent of the decisions favoured the plaintiff, but only 63 percent of the time, concessions were granted, indicating the system's inadequacy at the compliance stage[xv]. The early settlement was for 59 percent out of all concessions made, showing importance of this stage in the GATT process.


PRINCIPAL SHORTCOMINGS OF GATT DISPUTE SETTLEMENT SYSTEM

The growing volume and complexity of trade disputes between an expanding number of member nations has clearly put excessive strain on a system that was not meant to handle such economic, legal, and political demands[xvi]. These flaws were exposed in three high-profile examples of non-compliance during the GATT's last years.


Nevertheless,itisimportanttorealizethat,giventhealternativeformsofinternational dispute settlement available, the GATT system must be recognized hashavingbeenasuccess.[xvii]Further,inspiteofitsshortcomings,theGATTdispute settlementsystemserveditspurposesufficientlywelltoformpartofthefoundationsoftheWTODisputeSettlement Understanding..[xviii]The growing volume and complexity of trade disputes between an expanding number of member nations has clearly put excessive strain on a system that was not meant to handle such economic, legal, and political demands. These flaws were exposed in three high-profile examples of non-compliance during the GATT's last years.


  • The relevant Articles were short and without explicit objectives and procedures, resolution was reliant on the formation of ad hoc methods

  • Ambiguity about the function of consensus, which results in the 'blocking' of negative choices

  • Due to the lack of a right to a panel and no firm time limitations on any component of the proceedings[xix], there were delays and ambiguity in the dispute resolution process.

  • Delays in panel rulings, as well as partial non-compliance with them.


THE WTO DSU AND THE URUGUAYROUND NEGOTIATIONS

The WTO Dispute Settlement Understanding (DSU) replaced the GATT system on January 1, 1995, and is considered one of the Uruguay Round's most important achievements. Before the Uruguay Round discussions initiated, the GATT Contracting Parties were in agreement that the dispute settlement system needed to be overhauled. Negotiations shall include the development of adequate arrangements for overseeing and monitoring of the procedures that would facilitate compliance with adopted recommendations.[xx]This isn't to claim that there was unanimous agreement on how a new conflict resolution mechanism should be built. One of Canada's, the EU's, and Japan's main goals, as well as many other developing nations', was to limit the United States' use of unilateral action, which is allowed under federal law, the adoption of a rule-oriented approach (automaticity), a defined timeframe for dispute resolution, and agreement on the possibility for cross-retaliation were the main goals of the US. The United States and other Members are constrained from acting unilaterally in many ways[xxi]. Members' national legislation must conform with their duties under the WTO, according to Article XVI.4 of the Agreement Establishing the WTO. Members are also required to follow the DSU's rules and procedures. The DSU incorporates the US objective of automaticity as a pivotale lement of the dispute settlement process.[xxii]Article 20 establishes a precise, and hence predictable, timeframe for the resolution of disputes. Article 22.3 addresses the limited possibilities for cross-retaliation between sectors in the event of non-compliance.


PROCEDURE FOLLOWED BY THE WTO’s DSU TO SETTLEMENT TRADE DISPUTES

The WTO's distinctive contribution to the global economy is dispute settlement, which is the key pillar of the multilateral trade system. The rule-based system would be less successful if there was no way to resolve conflicts since the rules could not be enforced[xxiii]. The WTO method promotes the rule of law and improves the trade system's security and predictability. The system is based on clearly –defined rules, with timetables forcompleting a case.[xxiv] The goal of DSU is to resolve conflicts as quickly as possible, preferably through talks.


INDIAIN WTO’S DISPUTE SYSTEM REGIMEASONE OF THE LEADING DEVELOPING COUNTRIES

The Dispute Settlement Understanding (DSU) of the WTO is widely regarded asthe “backbone of the multilateral trading system”.[xxv] The notion of "automaticity," "crossretaliation," rigorous timetables, and the ability to submit appeals before an appellate body were all established by the new DSU, ensuring that developing nations could play a more significant part in the dispute resolution system. The first several years of WTO dispute resolution were eye-opening. During this period, the DSU's efficacy was put to the test.During this time, there were a slew of complaints from developed countries and between developing and developed countries. India's experience with the WTO's negotiation process and dispute resolution mechanism paints a quite different image. During this time, India emerged as a powerful actor and a strong voice for developing countries in international negotiations. The changes happened at a time when India’s trade share was still very in significant; India’s merchandise trade was less than 1 percent and services trade was less than 2 percent.[xxvi] One area where India's involvement was noticeable was in dispute resolution. In that context, a look at India's human, institutional, and stakeholder capability can help us figure out how it dealt with some of the most pressing issues. India was well aware of the ramifications of entering a multilateral trade agreement like the WTO.


Immediately after joining the WTO, India had to face challenges to its patent mail-box system from the U.S. and the EC.[xxvii]According to TRIPS Agreement if a member under Article 70 does not provide patent protection for pharmaceutical and agricultural chemical products as of the TRIPS Agreement's entry into force date, that Member must set up a system for filing patent applications for those products (known as "mail-box" filing). The goal of the mail box filing was to provide a legal foundation for determining filing and priority dates that would be utilized when these applications were subsequently assessed. In the lack of domestic law, India's use of "administrative instructions" does not offer a strong legal foundation for assuring conformity with the TRIPS Agreement, according to the Appellate Body. India's loss in these battles sparked a flurry of arguments in India, as well as a surge in interest in IPR issues.


As a respondent, India was challenged by the US for levying "additional duties" and "extra additional duties" on wine, spirits, and other agricultural and manufactured products, which the US claimed were in violation of WTO commitments, specifically Article II:1(a) and (b), as well as Article III:2 of the GATT. The panel found in India's favour, but the Appellate Body overturned the panel's decision. The disputed Additional Customs Duty was implemented to counterbalance the impact of state-level excise taxes on locally made goods. The tariff was set at the state's highest level of taxes. It was difficult to remove the import charge without also eliminating the excise duty on domestically produced wine and spirits.


CONCLUSION

The World Trade Organization's (WTO) dispute settlement mechanism appears to be an inextricable aspect of international economic law, and it's impossible to imagine the multilateral trading system without it. After all, the WTO's dispute resolution mechanism is one of the organization's success stories. There are, of course, objections and several ideas in the framework of DSU reform. However, no government is now advocating for the WTO dispute settlement system to be abolished. Indeed, many reform ideas ask for more efficient and effective conflict resolution. Modifications may be on the way, but the future of WTO dispute settlement is unquestionably secure.


States are prepared to sell a portion of their sovereignty for the benefits of coordinated efforts and international governance in the current era of globalization. Deep integration follows shallow integration, which includes everything from consultation to coordination and harmonization to coordination. States must create new means to resolve their issues on the international stage in such a world. The DSU will take another big stride toward strengthening the rule of law in international relations with an upgraded and reformed institutional compliance framework.


REFERENCES

BOOKS

1. J. Collier, V. Lowe, The Settlement of Disputes in International Law. Institutions and Procedures, New York 2000

2. L. Ehrlich, Prawo międzynarodowe, Warszawa 1958

3. J William Davey, “Hand book of WTO/GATT Dispute Settlement” Irvington-on-Hudson, (New York: Transnational Juris Publication/Kluwer, 2000)

4. Jackson, John H. 1998. “Designing and Implementing Effective Dispute Settlement Procedures: WTO Dispute Settlement, Appraisal and Prospects.” In The WTO As An International 180 Organization, edited by Anne O. Krueger. (Chicago: University of Chicago Press)


ARTICLES

  • K. Sarhan, The ABCs of WTO Dispute Settlement, Dispute Resolution Journal, Nov 2005–Jan 2006

  • Susan Tiefenbrun, “Free trade and protectionism: The semiotics of seattle”.Ariz.J.Int’l&Comp.L.,266-68 (2000)

  • Carolyn B.Gleason & Pamela D.Walther, The WTO Dispute Settlement Implementation Procedures: A Systemin Need of Reform, 31 LAW & Pol’yInt’lBus.709 (2000).

  • WTO’s Defective Dispute Settlement Process, The Hindu ,July 6, 2000.

  • VanBael,Ivo.1988, “The GATT Dispute Settlement Procedure. “Journal of World Trade 22(4)

  • Castel, Jean-Gabriel.“The Uruguay Round and the Improvements to the GATT Dispute Settlement Rules and Procedures.”38 International and Comparative Law Quarterly (October) 1989

  • Montañai Mora, Miquel. “AGATT With Teeth: Law Wins Over Politics In the Resolution of International Trade Disputes. ”Columbia Journal of Transnational Law31 (1)1993:103-108

  • Pescatore, Pierre. “The GATT Dispute Settlement Mechanism: Its Present Situation and its Prospects. ” Journal of International Arbitration 10(1)1993:27-42

  • William Davey, The WTO Dispute Settlement System: The First Decade, J.INT’L.ECON.L.79 (2001)

  • Suhail A. Nathani, Dispute Settlement Methods Under The WTO And Free Trade Agreements, Working Paper on Commercial Diplomacy: Dispute Settlement Methods CUTS Training Seminar on Commercial & Economic Diplomacy ELP

  • Robert Read, Trade Dispute Settlement Mechanisms: the WTO Dispute Settlement Understanding in the Wake of the GATT, LancasterUniversity Management School

  • Marc L. Busch and Eric Reinhardt, Evolution of GATT/WTO Dispute Settlement, Trade policy research. - Ottawa : Minister of Public Works and Goverment Services, ZDB-ID 2094723-9. - 2003, p. 143-184


WEBSITE

· www.wto.org

· www.unitar.org/dfm

· http://www.worldtradelaw.net


REPORT

  • Report of the Secretariat, Trade Policy Review-India, WT/TPR/S/182 (Apr.18,2007).

  • Appellate Body Report, India– Patent Protection for Pharmaceuticals and Agricultural Chemical Products, WT/DS50/R and WT/DS50/AB/R (adoptedJan.16, 1998) [hereinafter India –Patents].


[i]J. Collier, V. Lowe, The Settlement of Disputes in International Law. Institutions and Procedures, New York 2000, p. 1. [ii]L. Ehrlich, Prawo międzynarodowe, Warszawa 1958, p. 356. [iii]Supra note 1 [iv]K. Sarhan, The ABCs of WTO Dispute Settlement, Dispute Resolution Journal, Nov 2005–Jan 2006, p. 72. [v]Sean P. Feeney, The Dispute Settlement Understanding of the WTO Agreement: An Inadequate Mechanism for the Resolution of International Trade Disputes, 2 Pepp. Disp. Resol. L.J. Iss. 1 (2001) Available at: https://digitalcommons.pepperdine.edu/drlj/vol2/iss1/4 [vi]usanTiefenbrun,”Freetradeandprotectionism:Thesemioticsofseattle”.Ariz.J.Int’l&Comp.L.,266-68(2000) [vii]CarolynB.Gleason&PamelaD.Walther,TheWTODisputeSettlementImplementationProcedures:ASysteminNeedofReform, 31Law &Pol’yInt’lBus.709(2000). [viii]WTO’sDefectiveDisputeSettlementProcess,TheHindu,July6,2000. [ix]Marc L. Busch and Eric Reinhardt, Evolution of GATT/WTO Dispute Settlement, Trade policy research. - Ottawa : Minister of Public Works and Goverment Services, ZDB-ID 2094723-9. - 2003, p. 143-184 [x]VanBael,Ivo.1988,“TheGATTDisputeSettlementProcedure.”JournalofWorldTrade22(4):67-77. [xi]Supra Note 9 [xii]Castel, Jean-Gabriel.“The UruguayRoundandtheImprovementstothe GATTDisputeSettlementRulesandProcedures.”38Internationaland ComparativeLawQuarterly(October)1989:834-849 [xiii]MontañaiMora,Miquel.“AGATTWithTeeth:LawWinsOverPoliticsIntheResolutionofInternationalTradeDisputes.”Columbia JournalofTransnationalLaw31 (1)1993:103-108 [xiv]Pescatore,Pierre.“TheGATTDisputeSettlementMechanism:ItsPresentSituationanditsProspects.” JournalofInternationalArbitration10(1)1993:27-42 [xv]Supra Note 9 [xvi]Robert Read, Trade Dispute Settlement Mechanisms: the WTO Dispute Settlement Understanding in the Wake of the GATT, Lancaster University Management School [xvii]DaveyWilliamJ.“HandbookofWTO/GATTDisputeSettlement”Irvington-on-Hudson,NewYorkTransnationalJurisPublication/Kluwer,2000 [xviii]Jackson, John H. 1998. “Designing and Implementing Effective Dispute Settlement Procedures: WTODispute Settlement, Appraisal and Prospects.” In The WTOAs An International 180 Organization, editedbyAnne O.Krueger.Chicago:UniversityofChicagoPress [xix]Suhail A. Nathani, Dispute Settlement Methods Under The WTO And Free Trade Agreements, Working Paper on Commercial Diplomacy: Dispute Settlement Methods CUTS Training Seminar on Commercial & Economic Diplomacy ELP [xx]GATT,1986 [xxi]Supra Note 16 [xxii]Stoler,AndrewL,“TheCurrentStateofWTO”,workshopontheEU,theUSandtheWTO,StanfordUniversity, 28February-1march,2003. [xxiii]WTO, Understanding the WTO: Settling Disputes, available at www.wto.org [xxiv]WTO/Understanding the WTO-A unique contribution; retrieved from http://www.wto.org/english/thewto_e/whatis_e/disp1_e.htmon21/06/2016 [xxv]WilliamDavey,The WTODisputeSettlementSystem:TheFirstDecade,J.INT’L.ECON.L.79(2001) [xxvi]ReportoftheSecretariat,TradePolicyReview-India,WT/TPR/S/182(Apr.18,2007). [xxvii]AppellateBodyReport,India–PatentProtectionforPharmaceuticalsandAgriculturalChemicalProducts,WT/DS50/Rand WT/DS50/AB/R(adoptedJan.16, 1998)[hereinafter India –Patents].